Q1 Preview: New Enrollee Drop, Gainful Employment Focus for Apollo Group (APOL) Investors


Apollo Group (Nasdaq: APOL) is lower heading into their first quarter earnings report, expected out after the market closes today. Shares are down5.1% this afternoon.

APOL is expected to report an EPS of $1.35 with revs of $1.26 billion. Last quarter, the University of Phoenix parent company reported an EPS of $1.31 on revs of $1.26 billion, both just about in-line with the consensus. Last year, in Q110, Apollo produced an EPS of $1.47 on revs of $1.27 billion, beating estimates calling for an EPS of $1.46 and revs of $1.23 billion.

APOL shares dropped 21.6% through the quarter, to $34.00 at the end of November. The stock is up 6.2% since then, and finished 36% lower in 2010.

A simple valuation puts APOL with a forward EPS of 8.1x FY12 EPS estimates, compared to 10.1x for Corinthian Colleges Inc. (Nasdaq: COCO), 8.8x at DeVry, Inc. ( DV ), and 10.7x for Strayer Education Inc. (Nasdaq: STRA).

Data from Bloomberg has 9 analysts with a Buy on APOL, 15 with a hold, and none suggesting to Sell. The analyst price target average is $48, with a high of $69 and low of $35.

For-profit company shares are seeing weakness today following an announcement by Strayer that new enrollment for their Winter session fell 20% from last year. STRA shares fell over 20% on the news today, and the sentiment is spreading across the sector.

Deutsche Bank recently gave an update for timing on Gainful Employment ( GE ) criteria that will be placed on for-profits. DB thinks that the new regulations will be available later in January (and possibly spring), as opposed to a mid-January target which a U.S. Department of Education Director said in early December.

On GE, Deutsche says, "House Ed Chairman Kline has publicly called for Sec Duncan to "change his approach" to GE or face a potential legislative challenge ‐ but with a split Congress, this is an empty threat. The only hope for a major change to GE would be a compromise between the DoE and Republicans, but that is a low probability event, in our view."

Deutsche is looking for an EPS of $1.49. They have a Buy rating on the shares and a price target of $60.

Barrington Research expects an EPS of $0.92 with revs of $1.092 billion. New degreed enrollment is expected to fall 41% to 57,840 students and total degreed enrollment falling 10.6% to 407,485.

Barrington notes that while management's initiatives (mandatory orientation program, changes to admission personnel compensation structure, reduced reliance on third-party lead generation) may cause a drop in enrollment, revs and earnings in the near-term, a longer-term outlook is becoming increasingly positive as "these initiatives will invariably lead to an improvement in the overall student experience (better completion/graduation rates and, as such, better bad debt/default/repayment rates) and higher quality and more predictable/profitable results."

Apollo Group is expected to release their Q111 earnings on Monday, January 10, 2011, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: APOL , COCO , DV , GE , STRA



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